To me, this all begs a simple question – what is the expected return on these infrastructure investments?

I think it is safe to assume (unless we are asking the Qataris, the Chinese and pension funds to be very generous indeed) that it is positive in real terms.

Meanwhile the real rate of interest on British government borrowing remains negative.

As I’ve argued before, when the markets are prepared to lend you money at a negative real rate and there are available investments with a positive rate of return this is a close to a ‘magic money tree’ as you can get. Capital spending in the medium term will be self-financing.

It really is only the politics that are stopping us from doing this. The Treasury can see the benefit of increased infrastructure spending in the UK and despite negative real interest rates stubbornly refuses to actually do it themselves. Instead of the capital spending we need, we get a serious of cunning plans, wheezes and schemes (from guarantees to using pension funds to holding summits with cash-rich foreign governments).

Written by Duncan Weldon

Duncan Weldon was a Senior Policy Officer in the Economic and Social Affairs Department covering macroeconomics and regional policy. Before joining the TUC he had a fairly varied career taking in the Bank of England, fund management, the Labour Party…